Marijuana plants grow in full sun in Pueblo County on Sept. 3, 2016. Pueblo County is one of the few places in Colorado that allows for outdoor commercial cannabis cultivation. (Vince Chandler, Denver Post file)

Appeals court panel sends racketeering claim by southern Colorado horse ranchers back to district court; shuts down complaints by Oklahoma and Nebraska

A three-judge panel for the 10th U.S. Circuit Court of Appeals in Denver on Wednesday largely upheld lower courts’ dismissals of several cases seeking to overturn major parts of Colorado’s marijuana laws, including efforts by two neighboring states.

The appeals court panel did, however, reverse a district court decision against a Pueblo-area ranch that sued a neighboring cultivation facility, claiming noxious odors and diminished property values. In remanding that case to district court, the judges left the door open for something that legal experts and case attorneys say could rattle the legal marijuana industry: that private-property owners could potentially bring federal racketeering claims against neighboring marijuana grows and dispensaries.

“This is basically a road map for people who own property that is near (a marijuana facility) … for how to bring a federal suit to get relief,” said Brian W. Barnes, an attorney for plaintiff Safe Streets Alliance, a Washington, D.C.-based anti-drug and anti-crime organization that took up the cause of Michael P. Reilly and Phillis Windy Hope Reilly, the owners of the Pueblo ranch.

The judges ruled that private landowners, law enforcement officers and neighboring states that claimed harm from cannabis legalization cannot use the federal Controlled Substances Act to challenge Colorado’s legal recreational marijuana regime. The judges also closed the door on Nebraska and Oklahoma’s pushes to intervene in the case after their similarly directed complaints to the U.S. Supreme Court were denied a hearing.

Despite the ruling against private citizens claiming there is federal preemption of state law, Barnes called Wednesday’s decision a “huge victory” for his clients as well as people opposed to the marijuana industry in Colorado. If successful in district court, his clients could be eligible to receive up to three times the claimed financial damages, have attorneys’ fees reimbursed, and have the court shut down the offending operation, he said.

In their 90-page opinion, the judges did appear to express caution and set boundaries on any potential future claims, stating:

We are not suggesting that every private citizen purportedly aggrieved by another person, a group, or an enterprise that is manufacturing, distributing, selling, or using marijuana may pursue a claim under RICO. Nor are we implying that every person tangentially injured in his business or property by such activities has a viable RICO claim. Rather, we hold only that the Reillys alleged sufficient facts to plausibly establish the requisite elements of their claims against the Marijuana Growers here. The Reillys therefore must be permitted to attempt to prove their RICO claims.

Even with that bit of couching, the court’s ruling could provide an opening for neighbors to sue for damages and seek financial relief, said Christopher Jackson, a Denver-based attorney for the Sherman & Howard firm who is not a party to the case.

“The court is limiting its application, but I still think that you’re going to see a ton more lawsuits citing this case,” he said.

Matthew W. Buck, an attorney representing the marijuana growers sued by the ranch, said via email that the Reillys “will have a difficult time proving that marijuana diminished their property value, or any property in Colorado,” claiming that the presence of the facility has increased surrounding property values. Buck also argued that the Reillys’ land is agricultural, and thus smells like agricultural processes, adding that “my clients did not complain when odors of manure wafted onto their delicious marijuana crop.”

“We will vigorously fight this case should the Reillys … choose to pursue it in the District of Colorado,” Buck wrote. “We found the claims not meritorious initially, the District Court agreed, and it will be up to a jury of Colorado voters to see whether they think D.C. special interest groups should meddle in Colorado citizens’ right to self-govern.”

The appeals raised four principal disputes that stemmed from the conflict between Colorado’s allowance of recreational marijuana and the federal Controlled Substances Act, which holds that marijuana possession, manufacturing, sale and cultivation are illegal, the judges wrote in the filing.

The judges didn’t rule on whether the U.S. Constitution’s Supremacy Clause would indeed preempt Colorado’s marijuana laws and other state-enacted legal cannabis statues, but rather that private citizens in this case didn’t have the appropriate standing to raise those claims, Jackson said.

“I think it’s unlikely that we’ll see a federal court striking down Amendment 64 in its entirety,” Jackson said, referencing Colorado’s voter-approved 2012 measure legalizing and regulating adult-use marijuana. “I don’t think there’s any kind of a procedural vehicle to do that anymore.”

Safe Streets’ Barnes countered that this ruling wouldn’t necessarily stop the U.S. Department of Justice from bringing a preemption suit against Colorado, especially considering the new administration in Washington, D.C.

“Whether or not a private plaintiff can sue on a preemption hearing, it doesn’t necessarily mean there aren’t going to be preemption lawsuits in the future,” he said.

The biggest takeaway from Wednesday’s ruling is that local and county governments are protected, said Tom Downey, a former state business licensing regulator who now is an attorney specializing in legal cannabis issues with Denver’s Ireland Stapleton Pryor & Pascoe, P.C.

“When I was the regulator in Denver, I worried about signing marijuana licenses,” Downey said via email. “These RICO suits have been a big concern for small, local jurisdictions particularly. You’ll hear a collective sigh of relief from counties and municipalities with this opinion, as well as from Colorado and other state governments.”

Alicia Wallace joined The Cannabist in July 2016, covering national marijuana policy and business. In her 14 years as a business news reporter, her coverage has spanned topics such as the economy, natural foods, airlines, biotech, retail,...